How Companies Succeed

Originally posted by RichardGabriel <rpg@steam.stanford.edu> on the organization-patterns list.

: In fact, it IS the company that best meets the needs of its society.

Unfortunately, I've studied how companies succeed and what such success means, and it boils down to something like this, but not exactly what you've written. The key is in the phrase ``its society.'' A company has a set of entities that buys its ``products'' and thereby provides revenues to the company. This set is ``its society'' in the sense I think is the thrust of the e-mail exchange I saw (what is important to the members of the corporation is a little different).

This set of customers, let's call them, has a mode (the most common sort of customer) whose needs the company meets best (by definition, I suppose). The needs of this mode might not be the needs of the whole set, and certainly those needs are not the needs of the let's call them the elite of that set. In fact, like many biological-like sets, the mode is bacterial - low-end, simple, casual users. Let's look at an example, Microsoft Word. The mode of people who buy this product use it infrequently and probably use computers infrequently. They are happy that what Word produces looks better than what they could scrawl on a pad, and they can get things done with it faster than handing it to their secretaries because with Word you can throw together a wide range of document things quickly but crudely. The mode loves it.

The best strategy for Microsoft is to improve Word as slowly as possible, and the fewer the number of competitors, the slower that is (development is the constraint in EliyahuGoldratt's term (and isn't it odd that this guy's name is Gold Rat?)). (I know one hardware company, for an automatic knitting machine, that has no competitors at all, and today they use 30-year-old technology and charge $500 for a 32k memory upgrade.) The required rate of improvement is what satisfies the mode, because anything more leaves money on the table and anything less leaves an opening for a secondary competitor.

There is another factor which I call Gambler's Ruin and which another writer (a business theorist) calls the Law of Increasing Returns which says that the company in the lead in revenues/profits increases its lead.

This implies a few things:

Competition is better than no competition
The mode tends to drag down the quality of the product as far as the non-mode is concerned
Gambler's Ruin says that the rich get richer, and so the leader can slow down and make more profit (the asymptote is the knitting company)
The average customer is not served because the mode expects less and the elite customer is screwed

I don't know of anyone who writes for a living where they typeset what they write who uses Word (I'm sure there are some, but I don't know any). All such people use, in order, Frame, Tex, and Interleaf. Yet Word is the best-selling, most profitable ``typesetting'' system. Does this serve society? It certainly serves the target society for Microsoft.

Another example, 15 years ago there were around 22 relatively major publishing houses which, in the 1960's and 1970's, put out quite good literature in addition to trash. Now there are 8 conglomerates who put out mostly trash. Trash to us is literature to the bacterial mode of readers. A few years ago Doubleday tried to lure Chris Alexander away from Oxford with a big contract. Chris asked them to list all the books they had in print that were more than 20 years old, and Doubleday couldn't name any. Chris also asked how their longevity compared to the 500-year-old Oxford.

Who serves which society best?

-rpg-